In Q3 2013, smartphone maker Samsung Electronics Comp., Ltd. (KSC:005930) showed some signs of weakness, but also posted strong financials defying claims of a major slump in its high-end smartphone sales.

I. Samsung Remains King of Smartphone Sales

For the quarter, Samsung -- which does not release sales numbers -- moved an estimated 85 to 89 million smartphones globally, according to analysts surveyed byThe Wall Street Journal. That's up roughly 20 percent versus Q2, when Samsung sold an estimated 71 million smartphones. Samsung now looks much better positioned to potentially meeting its ambitious goal of selling 300 million smartphones globally (an average of 75 million per quarter) that it set for itself late last year.

After moving a reported 22 million units of its flagship Galaxy S4 in Q2, Samsung CEO JK Shin told reporters [translated] on Wednesday that sales had cracked the 40 million unit mark by the end of the quarter, indicating sales of about 18 millions GS4s in Q3. Mr. Shin is quoted elsewhere as saying, "S4 sales are solid. It's just that some analysts had higher expectations and then they lowered them."

The Galaxy S IV

Assuming nothing was lost in translation and GS4 unit shipments declined by 4 million units on a quarter-to-quarter basis, that's a decline of nearly 20 percent, which appears troubling. But that number is also somewhat deceptive as Samsung also picked up a burst of Galaxy Note III sales following the device's Sept. 25 launch.

This discrepancy is likely because Samsung and Apple have traditionally charged more for their premium models. For example an iPhone 5S with 16 GB of storage retailed for $649 USD overseas -- the same price as the 16 GB Galaxy "Nexus" S4 at launch. By contrast Nokia's 2012 flagship device -- the Lumia 920 -- retailed for as little as $450 USD off contract at launch (although that's changing -- the industry-leading camera smartphone, the Nokia Lumia 1020 launched at $699 USD off contract).

Overall Samsung's smartphone unit cashed in with an operating profit of 6.28 trillion won ($6.3B USD) on sales of 35.2 trillion won ($33.1B USD). This represents a 7 percent rise in profit and 3 percent rise in total sales revenue over Q2, indicating that the growth of low-end sales has more than offset the stall in high-end sales growth.

II. U.S. Outlook -- Apple v. Samsung, Still a Two-Horse Race

The smartphone battle in the U.S. market is still very much a two company race with Samsung and Apple trading blows in Q3. Samsung ranked second, behind only Apple in a recent JD Power and Associates study examining customer satisfaction with their smartphones (Nokia notably beat all other Android OEMs, coming in third place).

Data collected by Counterpoint Research showed that in September Apple seized a commanding 39 percent lead in new device sales in the lucrative U.S. market, with Samsung in second place at 29 percent.

But not so fast -- the same study shows Samsung winning by double digits in July and August as Apple fans waited for the iPhone 5C/5S.

Consumer Intelligence Research Partners (CIRP) reports that after falling behind Apple in U.S. sales in Q2, Samsung's strong July-August performance managed to trump Apple's powerful September showing, allowing it to regain the top spot in sales.

CIRP estimates that Samsung smartphones accounted for 38 percent of U.S. sales, while Apple devices took 34 percent of the market. Together the two firms accounted for nearly 3 out of every 4 smartphones sold in the U.S.

III. Overseas Samsung Tramples Apple

But when looking at global sales, the picture Samsung's slow growth and maintenance of high-end sales looks remarkably better than the outlook for Apple. While Apple has not released its sales numbers, Argus Insights has combined a number of analyst estimates along with its own data to compile a series of estimates of how many iPhones were sold globally in Q3 2013 (Apple's fiscal Q4 2013). Its estimate pegs iPhone sales at 27 to 31 million units.

Argus says this is due to the fact that while the iPhone 5S was moderately well received, customers were very critical of the iPhone 5C which appeared to parrot Nokia's colorful body designs. Argus writes:

This was the softest launch for Apple in years. The 5C was a a global bust. We recently started bringing in some data from Chinese consumers and was surprised to find that the buzz around the 5S was over 35 times higher than the 5C. Surprisingly we did not see the iPhone 5 demand jump the way the iPhone 4S did after the iPhone 5 launch. Overall buzz for Apple is falling everywhere but China. This does not bode well for the next year and opens Apple to disruption by other competitors

The iPhone 5C was poorly received by customers

Indeed the buzz around the iPhone 5C seemed to be tepid at best. Apple has a tendency to surprise pessimistic analyses, but most of that trend was set in the Steve Jobs era -- under Tim Cook's leadership Apple has seen a disappointing stall in smartphone sales growth.

IV. Samsung's Other Products Showed Mixed Results

While all of Samsung's major units remained profitable, revenue from the display unit sagged 12 percent continue a trend from Q2. Samsung currently owns a dominant market share in the industry's cutting edge technology OLED displays. The display division's strong sales to smartphone manufacturers has somewhat insulated it from the TV market's decline, but the overall weakness is bad enough that it's dragging Samsung down with the rest of them.

Writes Bloomberg:

TV makers are reeling from sluggish demand, especially from China, while tougher competition is accelerating price reductions. Global shipments for liquid-crystal display TVs may fall 0.7 percent to 205.1 million units for this year, market researcher TrendForce said Aug. 22. The final figure may be as low as 202 million units, it said.

On the other hand, booming sales of PC, tablet, and smartphone DRAM coupled with a lucrative contract to manufacture the Apple A7 aboard the iPhone 5S, saw Samsung's semiconductor unit to snag 2.06 trillion won ($1.94B USD) on sales of 9.74 trillion won ($9.17B USD) -- a 12 percent rise in revenue and 17 percent rise in profit. DRAM and NAND flash storage (collectively referred to as "memory" by Samsung) accounted for 6.37 trillion won ($5.99B USD), or roughly two-thirds of Samsung's semiconductor revenue.

Samsung is now producing NAND on the 10-19 nm node. [Image Source: Samsung]

The Galaxy Tab 3 7.0"/8.0"/10.1" debuted in June priced at $199/$299/$399 USD respectively. Android in Q2 passed Apple in tablet market share on a platform basis, but Samsung -- the top Android tablet maker -- still trailed Apple in unit sales. It is unclear how much that changed in Q3.

A final note on the device side -- the Galaxy Gear, despite rampant advertising -- was a virtual nonfactor in Q3 earnings. Samsung -- who reportedly is planning a Google Glass Explorer challenger -- has a lot of work to do to grow wearables into a high volume market.

On the tablet front Samsung has the most growth potential. With Apple's decision to price its 7-nch tablet $200 USD higher than Samsung's most recent model, it's essentially giving Samsung the majority of sales at this form factor. Given its aggressive price, the only major concern for Samsung's tablet sales remains intellectual property concerns.

Apple has given Samsung the 7-inch market with its pricing decisions.

Recent patent decisions in the U.S. indicate a high likelihood that the majority of Samsung's product line is in violation of Apple's patent portfolio on multi-touch and other technologies. Questionable nature of these patents aside, Samsung has hope yet of staving off Apple, though, in that it can release so-called workarounds that delay bans.

Thus thanks to a combination of the inherently slow U.S. court system (two Apple v. Samsung lawsuits remain pending in federal court -- the GS4 one won't be tried until late 2014, at the earliest) and its workaround strategy, Samsung remains relatively safe in the U.S. -- for now.

VI. Outlook -- Semiconductor, R&D, and Report Card

Expect Q4 to be a key test as Samsung faces a refreshed Apple lineup and new models from HTC, Nokia, LG, and other players. The Galaxy Round is Samsung first effort tipped to try to ward off those rising stars in Q4 2013. It features a slightly rounded OLED screen, which gimmicks aside supposedly "hugs" the outline of your leg better when in your pocket.

But while smartphone and tablet market performance remains a key test in Q4, Samsung seems sure to post more record profits thanks to its semiconductor sales.

Basically Samsung is selling as much DRAM as it can manufacturer, but demand is still outpacing growth. Thus in Q4 expect yet higher profits. Of Samsung's 6 trillion won ($5.64B USD) in Q3 capital spending, roughly half ($2.5B USD) went to the semiconductor unit, with the chief goal of pumping up DRAM production.

Samsung is cashing in, in the wake of a DRAM supply shortage [Source: regmedia]

From whence does this demand come? The demand surge comes thanks to supply shortages at SK Hynix Inc. (KRX:000660), a top DRAM supplier. A fire broke out last month at SK Hynix's DRAM line in Wuxi, China, a facility that accounts for 10 percent of the world's DRAM supply. While production is expected to fully resume this month, the shutdown is expected to cut SK Hynix's output by 14 percent, and leave the overall market with a 7 percent deficit in components. To Samsung, that news is the sweet sound of money.

So expect revenue, profit, and overall financials to rise to new records in Q4 -- even if Samsung was basically handed this golden opportunity via SK Hynix's misfortune.

Samsung's earnings report card for Q3 2013 is:

Revenue B+

Profit A-

Budget Phones: A-

Mid-to-Premium Smartphones: B

Consumer Electronics C

Semiconduct/Display A

In other words, the world's largest electronics company is still the world's largest electronics company, but it didn't escape the quarter without showing signs of weakness.

quote: Let me see, the iPhone (now) has a flash system that 99% of competing phones cannot hope to match (there are two that have better flashes, and under 10 that are *eh* and none of those are huge sellers).

Dual color flash? Seriously? I have a dslr with an add-on flash. Guess what. It is not dual color. Why? There is something in photography called auto white balance. What a concept! And guess what. My Sammy GS4 has that too. Doesn't need a gimmicky flash. If you want a good flash on a phone, only a xenon flash will do. LED flashes are barely worth the silicon they are made with.

quote: It has fingerprint reader, which to most people means "it is ultra good!11!1!!" and such.

Fingerprint reader? Ultra good? Bro, what you are smoking? I think that dead horse has been beaten over and over. The consensus has been that it is yet another gimmick, that has already been done on android phones, that is no better than Android's simple face or pattern unlocks. Again - a waste of precious real estate on a teensy 4" screen phone.

Applecare? Bwahahahaha!!

quote: Every iPhone comes with one year of hardware repair coverage through its limited warranty and up to 90 days of complimentary support. AppleCare+ for iPhone extends your coverage to two years from the original purchase date of your iPhone and adds up to two incidents of accidental damage coverage, each subject to a $79 service fee plus applicable tax.

All phone makers provide a full 1 year warranty. The rest is nothing more than an extended warranty. You can get that from any cell phone provider or even your credit card company.

You realize this is nothing more than an extended warranty, right?

Yes iOS is smooth. It is designed to be run on hardware tightly controlled by Apple and only that hardware. Apple doesn't provide iOS to not Apple hardware vendors and for them, that is just fine. That also means it is completely 100% "what you see is all you get" and nothing more. iOS is iOS. You don't like how it does something, tough - go take it up with Apple. Just don't hold your breath to do anything about it.

If you don't like the way Android does something, fine - yhou can change it to work exactly the way YOU want it to work. Don't like the useless apps provided by the cell phone provider? Covered - you can load in a 'lean' rom that is every bit a smooth to use as your iOS. Don't like the stock app launcher & main UI? Not a problem - there are some really nice alternates. Want to overclock your phone? Again - not a problem. I challenge you to try any of that with an iPhone - even a jailbroken one.

1. The flash system is still BETTER than most of the other phones out there, Software can always be tweaked, hardware you are stuck with, with things that are comparable across platform lines, take the better one. FWIW, I personally have a 1020 for a reason :)

2. The whole fingerprint reader thing was mocking people...

3. Apple is far better about warranties than any other company I have had to deal with (Acer, Dell, HP, Lenovo, Microsoft, HTC) I haven't had experience with most of them involving phones, but it has been miles above anything I have experienced. It is not very hard to get a lot out of people at the Apple Store for free/ultra-low cost, I have plenty of experience with that.

4. I have played with Android, I dislike it. I am a minority case that does TONS of reading on my phone, being smooth is needed for all the reading I need. That being said, there is a point where it becomes "Seriously?" as in 1Ghz A9 core in iPhone 4 (.5GB RAM) (iOS 5 jailbroken) feels faster than a 1.2Ghz dual core A9 (1Gb RAM) (4.2 stock) is the point where I get fed up.

5. I don't need a fast phone, I need one that feels smooth, can handle all tabs without reloading, very nice camera, play/store vidoes, and do offline mapping. MY NEXT DESIRABLE THING IS BATTERY LIFE.

Gee, thanks for reading my post (like where I pointed out I have a 1020) and if you can show me an Android OS that is smooth, please do. I have yet to find one. I don't go to iOS7 because it is stupid stuff (and upgrading would probably take longer than I use my iPhone every month)

I jailbroke because Apple didn't have an OS that was even usable without having to run to settings every 10 seconds before iOS7.

Any Android 4.1 or newer where you kill the OEM bloatware is plenty fast. It does take a few minutes of work but this is a tech site and if you are here you should be able to do it, and if you can't, you don't belong here. The notion that Android is slow is ridiculous and wrong and a newbie comment. Its a far more advanced OS that does far more things and supports many many more configurations and it takes a little bit of know how to make it shine.

I have no idea what that means. There have been complaints of slowness and stuttering and that is what I was speaking to. That is true of really old versions and OEM stock ROM's, but it's completely false of the OS itself on any recent phone, even low end. Any dual core s4 chip or higher can run Android sweet and smooth and stutter free.

I have noticed that too. It's not all Samsung phones, and not even all of any particular models. There are definitely some permutations and situations where it happens. MAybe some combo of bloat and certain apps loaded or running in the background... One thing I do know for sure, if you take 10-20 mins to root and and kill off that bloat Samsung phones really shine. Even older dual core models fly.

Exactly. I can confirm that. My boss and I both have a G2, our other co-worker has a Note3. The G2's (even stock with bloat) are fast as hell. The Note 3 has some issues stuttering when launching and switching apps, as well as stuttering when scrolling (stock, pre-bloatfix). Not much, but a bit, enough to notice. After killing some of the OEM and VZW apps , the Note3 screams! In comparison, an old US-GS3 with dual core snapdragon 4 CPU with custom ROM's that dont have Sambloat, even they are fast as hell with zero lag/stutter/slowness anywhere. The MotoX is a good example of that too as Reclaimer says below. It's dual core but runs extremely fast. It's not even a CPU issue, its just that some OEM's bloat it out and do a piss poor job it it.